Event study, Financial Management

Event studies are one of the most powerful and widely used applications of the capital asset pricing model (CAPM). An event study is an attempt to determine whether a particular event in the capital market or in the life of a company has affected a company's stock market performance. The event-study methodology aims to separate company-specific events from market- and industry- specific events, and has often been used as evidence for or against market efficiency.

1. An event study aims to determine whether an event or announcement caused an abnormal movement in a company's stock price. The abnormal returns (AR) are calculated as the difference between a stock's actual return and its expected return, where the stock's expected return is typi- cally measured using the market model, which relies only on a stock's market index to estimate its expected return.

2 Using the market model can measure the correlation between an individual stock's return and its corresponding market returns. In some cases, we sum the abnormal returns to arrive at the cumulative abnormal return (CAR), which measures the total impact of an event through a particular time period, also called the event window.

 

Posted Date: 2/27/2013 7:27:46 AM | Location : United States







Related Discussions:- Event study, Assignment Help, Ask Question on Event study, Get Answer, Expert's Help, Event study Discussions

Write discussion on Event study
Your posts are moderated
Related Questions
What is capital rationing?  Should a firm practice capital rationing?  Why? The term Capital rationing is the practice of setting dollar limits on what will be invested in new ca

Explain the risk-return relationship. The relationship among risk and required rate of return is known as the risk-return relationship.  It is a positive relationship for the r

In two of the four months of the cash budget Thorne Co has a cash shortage with the highest cash deficit being the opening balance of $40000. This cash shortage which has occurred

You have been hired as an economic advisor to the Southeastern Conference. As your first assignment they have asked you to identify three microeconomic and three macroeconomic issu

Air Manchester (AM) is a new airplane manufacturer. It is considering investing in a software package, e.g. SAS, which would make its daily operations more efficient

Would exchange rate changes all time increase the risk of foreign investment? Discuss the condition within which exchange rate changes may actually decrease the risk of foreign inv

Question: i) What are the rationales of interest swaps? ii) You are the corporate treasurer of LSE International Inc. Your firm, rated as AAA, is able to raise capital in

'Foreign Exchange Market': Definition of 'Foreign Exchange Market' The markets, in which participants are able to sell, buy exchange and speculate on currencies.  Foreign e

Fixed income security is a financial obligation of an entity, which promises to pay a pre-specified amount of money at per-specified date. Debt securities (

What are retained earnings?  Why are they important? Retained earnings denote the sum of all the earnings obtainable to common stockholders of a business throughout its whole h